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Practice owner shares 4 tips for ‘profit first accounting’
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NEW ORLEANS – Michael A. Kling, OD, shared the financial pearls and system that turned his practice around, allowing him more financial freedom and the ability to acquire five practices in Southern California, at the MedPro360 session at SECO.
“Profit is a choice, it’s a decision you make; it’s not a result, but an action,” said Kling, who is also a business coach and helps other optometrists get on track financially.
According to Nerdwallet.com, the average person in the U.S. has $15,983 in credit card debt, $27,775 in car debt and $47,047 in student loan debt, Kling said. Also, 78% of people in the U.S. live paycheck to paycheck.
He said most people in the U.S. operate using “bank balance accounting,” which is tied to the amount of money one has in the bank. He said some people will check their bank account online four or more times a day.
This is flawed accounting, Kling said, because you will end up spending whatever you have, according to Parkinson’s law
“If you go into a store with $5, you’ll likely spend the $5,” he said. “Bank balance accounting is not a good way to run a business.”
He recommended that practices operate using “profit first accounting,” which is: sales minus profit equals expenses. This philosophy helped him grow his profits exponentially and place him on more solid financial ground.
“It works because you pay yourself first,” Kling said.
The four core principles of profit first accounting, which he learned in the book, Profit First by Mike Michalowicz are:
--small plates;
--serve sequentially;
--remove temptation; and
--create a rhythm.
“Small plates” mirrors the idea in dieting where filling a smaller plate with food actually makes you feel fuller compared to a larger plate with the same amount of food on it.
“When we have more available in our bank accounts, we consume more money,” he said.
“Serving sequentially” means prioritizing the order in which you do things.
“We place more value in the things that come first,” he said.
If you have a habit of doing something that is not healthy for you, Kling suggested removing the temptation.
“Like we do with food, to eat healthier – we can do this with our money too,” he said. “Just remove the temptation."
Diabetic nutritional counselors will often tell their patients to eat four or five times a day to avoid drastic swings, Kling said. “When we get into a rhythm with our money, things really start to change.”
If we saved 1% more per year, across 20 years, that would be a substantial amount of money, he said.
“Nearly anyone can live on 1% less,” he said. “Had I known then what I know now and taken my profit first, I would have $510,000 – if I had only taken 1% profit off the top of every dollar I earned over the last 20 years.”
Kling added that one penny on every dollar is nothing, but compounded with interest, over time it adds up.
“If you only take one thing from me today, try this method,” Kling said.
Healio, the online home of Primary Care Optometry News, is MedPRO360’s official media partner. – by Abigail Sutton
Reference:
Kling M. MedPRO360 Presents: The profitable doctor – eradicating practice poverty learning lab. SECO; February 20-24, 2019; New Orleans.
Disclosure: Kling is a business coach and speaker for Impact Leadership.